Thailand Wants To Expand Its Eastern Economic Corridor To The Russia Market

Following recent meetings between the Foreign Ministers of Russia and Thailand, at which the two countries pledged to triple their bilateral trade to turnover, Supant Mongkolsuthree, the Chairman of the Federation of Thai Industries (FTI) has shown enthusiasm for this and suggested using the Thai Eastern Economic Corridor as a route to market.

US-China Trade War Persuading Asian Economies To Look Beyond US For Trade Development
Thailand is keen to revive its flagging economy; impacted by the US-China trade war, Thai exports fell for the fourth straight month in June, due to weak global demand amid the world’s economic slowdown, ongoing international trade tensions between the US and China, and lower oil prices.

“This is the channel that we should look more into,” Mr Supant told the Bangkok Post at the 2nd Russian-Thai Business Forum held last week. “Russia is a big country that consumes lots of products worldwide.” What the Thai government should do, Mr Supant said, is find ways to increase trade volume between the two countries to ease the unwanted effects from the US-China trade war that is hurting Thailand’s exports right now.

“Russia has been backing away from its relationship with the US for quite some time now, so its trade volume is depending more on domestic demand and China, and what we could do is increase our trade with them as well,” he said. One concern Mr Supant acknowledged is that exporting to Russia is “quite complicated” at the moment because of the high level of regulations and a tax system that is still “quite unsupportive”.

“This is where the Thai and Russian governments could work together in negotiation to make the trading situation between the two countries more conducive,” he said. “If we can fix these problems, then the trade volume between the two countries could increase quite substantially.”

Kriengkrai Thiennukul, the FTI’s vice-chairman and the federation’s point man on relations with Russian businesses, has stated that Thailand and Russia already have some trade agreements with one another which contributed to trade volume of about US$3.5 billion last year, but the figure is still “small”.

“Thailand shipped about US$1 billion worth of goods to Russia and imported about US$2 billion, which means that we are the one with the trade deficit,” Mr Kriengkrai said. “Nevertheless, the prime minister and the Russian president already met about two years ago and they both commented that there was still a lot of room to improve the bilateral relationship.” One way this could happen is if the proposal for Thailand to agree a Free Trade deal with the Eurasian Economic Union comes to fruition. The Eurasian Economic Union (EAEU) includes Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia, and conducts about US$2.2 trillion in trade between member states. Thailand has recently upgraded a trade agreement with the EAEU but this still falls short of a full FTA. There are previous examples however. Neighboring Vietnam does have such an agreement and has seen Russian investment and trade into the country increase from practically zero to about US$10 billion in just two years.

Meanwhile, Mr. Kriengkrai said that the national Eastern Economic Corridor scheme is the main area that could improve cooperation between two countries, as the Thai Eastern Economic Corridor is aiming to develop new S-curve industries for the Thai economy based on digital transformation. Since Russia has expertise in information technology, a great opportunity is available for Thailand to use the EEC to attract Russian investment flows.

The Eastern Economic Corridor straddles three eastern provinces of Thailand – Chonburi, Rayong, and Chachoengsao – off the coast of the Gulf of Thailand and spans a total of 13,285 square kilometers. The government hopes to complete the EEC by 2021, turning these provinces into a hub for technological manufacturing and services with strong connectivity to its ASEAN neighbors by land, sea and air. As of January 1, 2018, the EEC has attracted US$9.3 billion in promised FDI, according to data provided by Thailand’s Board of Investment (BOI).

A major focus of the EEC is to improve existing connectivity and foster manufacturing and innovation. The government envisions creating established sea routes from the eastern provinces of Thailand to Myanmar’s on-going Dawei deep-sea port project, Cambodia’s Sihanoukville port, and Vietnam’s Vung Tau port. The government is expanding the Laem Chabang seaport – already the country’s biggest – with the goal of transforming it into a marine hub of South East Asia and beyond.

To improve connectivity by air, Thailand is expanding the U-Tapao airport in Rayong province substantially. With the opening of a second passenger terminal and runway, the U-Tapao airport’s passenger capacity will increase from its current 800,000 people to 3 million. The expansion will not only facilitate an increase in tourist arrivals – attracted to Thailand’s eastern beaches – but will also transform U-Tapao into a hub for aviation maintenance, repair and overhaul, air cargo, and logistics.

Opportunities For Russian Investors In Thailand
Connectivity by road will improve with the development of high-speed and double-track railways connecting ports, airports, industrial clusters, and major urban centers throughout Thailand. Expansion of airports, railways, and sea ports may very well transform Thailand’s eastern provinces into a robust and dynamic commercial region. With the creation and expansion not only of manufacturing centers but entire cities, the success of Thailand’s ECC may open up Thailand as a premier investment and business location of ASEAN – and potentially to markets such as Russia and the Eurasian Economic Union.

“On the other hand, Russia is also urging Thai investors to invest in Russia’s agricultural, food and furniture sectors,” Mr Kriengkrai said. “President Putin is concentrating on his country’s food security right now, which presents a good opportunity for Thai investors in the food sector to invest in Russia,” he said. “Meanwhile, Russia also has lots of forest land that could be turned into furniture, and they are inviting us to invest in this field as well.”

“There are opportunities for Russian investors in Thailand” says Chris Devonshire-Ellis of Dezan Shira & Associates “and a large talent pool of Russian expatriates already living in the country. There is a Thai-Russia Business Council and on the ground expertise can be found. Likewise, many Russians enjoy Thai food and spices and with a strong work ethic bilateral trade numbers can undoubtedly grow”

About Us

Russia Briefing is written by Dezan Shira & Associates. The practice assists foreign investors throughout Asia, has done so since 1992, and has offices in Moscow and Bangkok. Please contact us for assistance or advise over investing in Thailand and Russia. Kindly email: russia@dezshira.com or visit our website at www.dezshira.com.